Modification Declaration No. 1 of 2006
EXPLANATORY STATEMENT
Prepared by the Australian Prudential Regulation Authority (APRA)
Retirement Savings Accounts Act 1997 section 177
This explanatory statement relates to Modification Declaration No.1 (MD 1) made by APRA under section 177 of the Retirement Savings Accounts Act 1997 (the RSA Act) on 29 June 2006. Section 177 of the RSA Act provides that APRA may, in writing, declare that a modifiable provision of the RSA Act is to have effect, in relation to a particular person or class of persons, as if it were modified as specified in the declaration. The modifiable provisions[1] include regulations made for the purposes of section 38 of the RSA Act and therefore include regulation 4.24 of the Retirement Savings Accounts Regulations 1994 (the RSA Regulations).
Background
1. MD 1 modifies RSA regulation 4.24 which deals with the circumstances in which superannuation benefits must be paid out or cashed, whether this be as a pension or as lump sum.
2. In general terms, regulation 4.24 requires that benefits be cashed where an RSA holder has attained age 65 and has not been gainfully employed for at least 240 hours in the previous financial year, the RSA holder has attained age 75 or the RSA holder has died.
3. MD 1 adds new subregulations 4.24(2C) and (2D) which remove the obligation on RSA providers to compulsorily cash benefits of RSA holders aged 65 or older during the period from 10 May 2006 to 30 June 2007.
4. MD1 does not remove the obligation to compulsorily cash benefits after the death of a RSA holder.
Purpose of the instrument
5. In the document “A Plan to Simplify and Streamline Superannuation” released with the Budget on 9 May 2006, the Government set out a number of changes which it proposes to make to superannuation and taxation law. As part of the plan, the requirement for compulsory cashing of benefits for RSA holders aged 65 or older would be removed (compulsory cashing of death benefits would continue to apply). On 13 June 2006 the Treasurer announced (via press release No. 58) that compulsory cashing would be removed with effect from 10 May 2006.
6. Regulations to give effect to the Government’s announcement on compulsory cashing will not be made until other aspects of the simplification plan have been legislated. This legislation is not expected to be made until after the public consultation on the plan is completed on 9 August 2006.
7. MD 1 provides interim relief in conformity with the proposed amendments to regulation 4.24 foreshadowed in the Treasurer’s announcement on 13 June 2006.
8. MD 1 applies both to RSA holders who turn age 65 during the period 10 May 2006 to 30 June 2007 as well as to RSA holders who were already aged 65 or older on 10 May 2006. Compulsory cashing of death benefits is unaffected by MD 1.
Operation of the instrument
9. MD 1 modifies RSA regulation 4.24 by adding subregulations 4.24(2C) and 4.24 (2D).
10. Subregulation 4.24(2C) removes the obligation on RSA providers to cash the benefits of RSA holders aged 65 or older for the period from 10 May 2006 to 30 June 2007.
11. Subregulation 4.24(2C) has the effect that an RSA provider that has cashed an RSA holder’s benefits in accordance with regulation 4.24 between 10 May 2006 and the date of registration of the declaration is not in breach regulation 4.24 as modified by the declaration. That is, an RSA provider that cashed benefits in accordance with regulation 4.24 as it stood before the coming into effect of the declaration would not be taken to have breached the regulation in its modified form. Given the retrospective application of the declaration, subregulation 4.24 (2D) was inserted to overcome any inequities that may arise if an RSA provider cashed out benefits in accordance with regulation 4.24 prior to the commencement of the amendments. With the inclusion of subregulation 4.24(2D), APRA is satisfied that no rights of a person will be affected so as to disadvantage them as at the date of registration of the instrument.
Consultation
12. APRA undertook a brief consultation process with relevant government agencies and industry organisations. No substantive issues were identified in the consultation process.
Commencement
13. MD 1 comes into force on the date it is registered on the Federal Register of Legislative Instruments.
Regulation Impact Statement
A regulation impact statement is not necessary in relation to MD 1, as the declaration is of a minor or machinery nature and does not substantially alter existing arrangements
[1] Modifiable provisions are defined in section 173 of the RSA Act.
Overview
Modification Declaration No. 1 of 2006, prepared by the Australian Prudential Regulation Authority (APRA) under section 177 of the Retirement Savings Accounts Act 1997, was enacted to address the immediate need to modify certain superannuation regulations in light of the government's plan to simplify and streamline superannuation. The declaration was made on 29 June 2006 and came into force upon registration on the Federal Register of Legislative Instruments. The primary objective of this instrument is to provide interim relief, in accordance with the proposed amendments announced by the Treasurer, which sought to remove the requirement for compulsory cashing of benefits for RSA holders aged 65 or older, effective from 10 May 2006. The declaration adds subregulations 4.24(2C) and 4.24(2D) to RSA regulation 4.24, temporarily removing the obligation on RSA providers to compulsorily cash benefits of RSA holders aged 65 or older during the period from 10 May 2006 to 30 June 2007, without affecting the requirement for compulsory cashing of death benefits. APRA consulted briefly with relevant government agencies and industry organisations, identifying no substantive issues, and determined that a regulation impact statement was not necessary given the minor nature of the changes.
Scope and Application
Modification Declaration No. 1 of 2006, issued by the Australian Prudential Regulation Authority (APRA) under section 177 of the Retirement Savings Accounts Act 1997, applies to RSA providers and RSA holders aged 65 and over as of 10 May 2006 or who turn 65 between 10 May 2006 and 30 June 2007. The declaration modifies regulation 4.24 of the Retirement Savings Accounts Regulations 1994, suspending the requirement for RSA providers to compulsorily cash benefits of RSA holders aged 65 or older for the specified period. This temporary measure aligns with the Government's plan to simplify and streamline superannuation laws, announced on 13 June 2006, which proposed to remove the compulsory cashing of benefits for RSA holders aged 65 or older. Notably, MD 1 does not affect the obligation to compulsorily cash benefits following the death of an RSA holder. The declaration aims to provide interim relief until the proposed legislative changes are enacted, ensuring that RSA providers who cashed benefits prior to the declaration's registration are not in breach of the modified regulation.
Key Provisions
The key provisions of Modification Declaration No. 1 of 2006 (MD 1) made by the Australian Prudential Regulation Authority (APRA) under section 177 of the Retirement Savings Accounts Act 1997 (RSA Act) pertain to the temporary alteration of regulation 4.24 of the Retirement Savings Accounts Regulations 1994 (RSA Regulations). Section 177 of the RSA Act empowers APRA to modify specific provisions in the RSA Act, and MD 1 applies this power to regulation 4.24, which governs the compulsory cashing of superannuation benefits. Regulation 4.24 typically requires superannuation benefits to be paid out as either a pension or a lump sum when the RSA holder turns 65, is no longer gainfully employed, turns 75, or passes away. MD 1 introduces subregulations 4.24(2C) and 4.24(2D) that temporarily exempt RSA providers from the obligation to compulsorily cash benefits for RSA holders aged 65 or older from 10 May 2006 to 30 June 2007.
MD 1 imposes obligations on RSA providers to refrain from compulsorily cashing superannuation benefits for RSA holders aged 65 or older during the specified period. RSA providers must comply with the modified regulation by not cashing benefits of RSA holders who meet the age criteria within the timeframe of the declaration. This obligation is a temporary measure to provide relief until the permanent legislative changes are enacted. RSA providers are required to adhere strictly to the modified regulation, ensuring that they do not cash benefits in contravention of the temporary exemptions granted by MD 1.
The declaration does not explicitly outline specific offences, penalties, or consequences for breaches of the modified regulation. However, RSA providers must ensure compliance with the declaration to avoid potential regulatory repercussions. The RSA Act and RSA Regulations do not detail penalties for breaches of regulation 4.24 as modified by MD 1. Nevertheless, RSA providers could face regulatory scrutiny, enforcement actions, or legal consequences if they fail to comply with the modified regulation and the declaration. The absence of a specific penalty in MD 1 does not diminish the potential for legal action or penalties under other provisions of the RSA Act or RSA Regulations for non-compliance with the declaration.